The Smart Way to Pay Partners Transitioning into Reirement

How to create a win-win.

By Marc Rosenberg
Partner Comp: Art & Science

Years ago, I had a consulting project that involved interviewing the firm’s eight partners in December and convening a group meeting in January. One of the partners was retiring, cold turkey, December 31.

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He had been a great partner for 40 years and had successfully transitioned clients throughout his two-year notice period, so well that during the last month or so prior to his retirement, the gentleman literally had nothing left to do and was no longer coming to the office. But he was willing to make a special visit so I could interview him.
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How Small ‘Books’ Hurt Firms

Businessman sitting at desk, looking forward and smilingLeverage, capacity and overservice are just some of the issues.

By Bill Reeb and Dominic Cingoranelli

Balancing “book of business” is one of the largest stumbling blocks for CPA firms. It is difficult to resolve because it is symptomatic, for most firms, of some real trouble brewing.

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Optimal Book Size

The optimum condition for firms to flourish is for books of business to be balanced throughout the firm. From the largest book to the smallest, the percentage gap between them should be fairly small (about 20-25 percent or less than a couple hundred thousand in fees).
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When Partners Leave: What to Do Today, to Be Prepared for Tomorrow

Man taking medication from caretakerSet policies now based on business, not emotion.

By Bill Reeb and Dominic Cingoranelli

Let’s review departure/termination policies.

MORE ON PERFORMANCE MANAGEMENT: The Four Basic Parts of CPA Firm Partner Agreements | Developing a Three-Year Vision [VIDEO] | MPs: How to Elect Them … and Fire Them | Firms Say What Would Change Retirement Pay | Action Plans for Transitioning Partners | How Retirement Issues Affect Succession Planning
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These may include:
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The Four Basic Parts of CPA Firm Partner Agreements

Time to retire clock faceIt’s complicated. But proper policies ease buyouts and transitions.

By Bill Reeb and Dominic Cingoranelli

Here is a list of common policies regarding partner/shareholder agreements that we cover with our firms, as well as some common issues that are important to address in the policies.

MORE ON PERFORMANCE MANAGEMENT: Developing a Three-Year Vision [VIDEO] | Why the Partner Agreement Matters | Younger Partners See Succession Differently | How to Compensate Your Managing Partner | The Job of Managing Partner: Empowered or Emasculated? | How the Best Managing Partners Turn Ideas into Reality | How Retired Partners Are Robbing their Own Firms | Action Plans for Transitioning Partners | How Retirement Issues Affect Succession Planning | Develop Your Employees or Suffer the Consequences
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The SOP (standard operating policy) categories are:
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Why the Partner Agreement Matters

Illuminated glass pyramid at the Louvre, Paris at nightMany agreements have long outlived a reasonable foundation for the firm’s current success level and size.

By Bill Reeb and Dominic Cingoranelli

Most of the time when we are called in to work with firms, it is to help them plan for or implement significant change. The dialogue may start out with a general firm retreat, or it might simply be a session devoted to solving a few specific problems.

MORE ON PERFORMANCE MANAGEMENT: Younger Partners See Succession Differently | How to Compensate Your Managing Partner | The Job of Managing Partner: Empowered or Emasculated? | How the Best Managing Partners Turn Ideas into Reality | Make Accountability a Process | Accountability Requires Clear Expectations | Base Retirement on Today’s Operations

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Visionary firms are always looking to make changes long before their operating environment forces them to, from enhancing their ability to compete, making changes to improve profitability, building infrastructure to support succession, upgrading their people development, modifying the compensation process, increasing revenues and more.
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Four Problems That Prompt Mergers

Six businesspeople in meeting around tableAnd three ways you win by tackling them now.

By Bill Reeb and Dominic Cingoranelli

When firms first start considering the idea to merge into a larger firm, they do it with the intent to solve a problem. Common problems distressing enough to motivate this transaction are:

MORE ON PERFORMANCE MANAGEMENT: Younger Partners See Succession Differently | More Merger Questions Than You Imagined | MPs: How to Elect Them … and Fire Them | Partners as Role Models: The Good, Bad & Ugly | Managing the Managing Partner | Pay Varies When Performance Varies | Accountability Is for Everyone | Who Decides What? | Firms Say What Would Change Retirement Pay | Action Plans for Transitioning Partners | How Retirement Issues Affect Succession Planning

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  • Leadership: Not enough future partners on the ground or in a near-future pipeline to be able to take over and retain the client relationships of the retiring partners while simultaneously continuing to nurture and develop new clients. This concern tends to be expressed frequently by senior partners when they share their discomfort with the level of risk they are accepting regarding their future buyout.

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23 Key Provisions in a Partner Buyout

handshake-1388361357w8dh9-150x150Vesting, notice, clawback and other points to ponder.

By Marc Rosenberg
How to Bring in New Partners

In determining buyout, I have discussed several key points, such as:

MORE ON PARTNERSHIP: Buyout: The Flip Side of Buying In | Research Results: How Firms Pay New Partners | What Does Buy-In Buy? | How to Structure Partner Buy-In | Keys to Bringing in New Partners

  • Will the buyout be limited to capital only or will it include a goodwill provision? (Ninety-five percent of all firms with retirement plans pay both.)
  • How will the goodwill be valued? The average goodwill valuation is roughly 80 percent of fees, although there are still many firms at 100 percent and many firms well below 80 percent.
  • How will an individual partner’s buyout amount be determined? Two partner retirement benefit systems that you should consider are AAV or average annual value, better described as “cumulative benefits,” and multiple of compensation, the most common method used by firms, especially those with six or more partners.

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Younger Partners See Succession Differently

Young woman driving a carAre you acting like an owner or an employee?

By Bill Reeb and Dominic Cingoranelli

Several of our younger partner readers have posed a couple of questions to us on the topic of mergers, as well as succession in general.

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At the end of the day, remember that just because junior and senior partners may be in different positions, have diverse perspectives and at times, opposite expectations, that doesn’t necessarily mean that you can’t find resolution in the same solutions. So, let’s pick up with a question/comment or two.
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